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discussion What do you know about economics?

  1. What does economics deal with?

  2. What kind of science is economics?

  3. What does economics study?


"...Every short statement about economics is misleading (with the possible exception of my present one)..." (Alfred Marshall)

Economics is a social science, like history, geography, politics, psycho­logy and sociology. It is the study of human efforts to satisfy what seems like unlimited and competing wants through the careful use of relatively scarce resources. It studies the most important aspects of our life linked with production, distribution, exchange and consumption of welfare. Therefore we can define economics as ''the study of mankind in the every­day business life."

The principles of economics lay the foundations for the way we transact business. It explains why things are produced and how supply is matched with demand. It explains why we pay a certain price for one good and another price for another good. It explains how prices change, how employment and output are determined in the economy as a whole and the effects of government spending and taxes.

The principles of economics underpin all commercial transactions. An understanding of these principles is therefore essential if you are to under­stand how the business world works.

It is a science, using scientific methods to develop theories of how eco­nomies operate.

Some times economics is defined as "the study of man in his attempts to gain living by utilizing his limited resources',' but one of the most compre-



hensive definitions of economics is that of Samuelson: "Economics is the study of how people and society choose, with or without the use of money, to employ scarce productive resources, which could have alternative uses, to produce various commodities over time and distribute them for con­sumption, now and in the future, among various people and groups in society"

Economics as a science consists of two disciplines that is of macroeco­nomics and microeconomics.

Macroeconomics is the study of "global" or collective decisions by indi­vidual households or producers. It looks at a national or international economy as a whole - e.g. total output, income and expenditure, unem­ployment, inflation, interest rates and balance of international trade etc., and what economic policies a government can pursue to influence the con­dition of the national economy. In macroeconomics we examine forest not the trees.

Microeconomics deals with analysis of specific economic factors and detail study of their behaviour. It studies individual producers, consumers or markets. Microeconomics also studies how government activities such as regulations and taxes affect individual markets. Besides microecono­mics tries to understand what factors affect the prices, wages and earnings. Therefore, the focus of microeconomics study are price or production of a certain product, number of employees, profit or income and expenses of firms or households.

Apportionment of such notions as macroeconomics and microecono­mics does not mean that the subject of Economic Theory is so strictly divided into separate parts that each topic is a pure microeconomic or macroeconomic one. Many of economics parts and topics are studied both in macroeconomics and microeconomics.

In studying economics it is important to distinguish two branches of the subject. The first is known as "positive economics',' the second as "norma­tive economics'.'

Positive economics deals with objective or scientific explanations of the working of the economy. The aim of positive economics is to explain how society makes decisions about consumption, production, and exchange of goods. The purpose of this investigation is twofold: to satisfy our curiosity about why the economy works as it does, and to have some basis for pre­dicting how the economy will respond to changes in circumstances.

Normative economics is very different - it offers prescriptions or recom­mendations based on personal value judgements.

In positive economics, we hope to act as detached scientists. Whatever our political persuasion, whatever our view about what we would like to happen or what we would regard as a "good thing',' in the first instance we have to be concerned with how the world actually works. At this stage there is no scope for personal value judgements. We are concerned with propositions of the form: if this is changed then that will happen. In this regard, positive economics is similar to the natural sciences such as physics, geology, or astronomy.


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balance - баланс, залишок, сальдо

to pursue - переслідувати

earnings - прибуток, доходи, виручка,

заробітна плата

profit - прибуток, перевищення

надходжень над витратами

expenses - витрати

positive economics - позитивна


twofold - подвійний

prescriptions - рекомендації

personal value judgement - суб'єктивна

оцінка цінностей

detached scientists - незалежні,

неупереджені вчені

political persuasion - політичні


VOCABULARY statement - твердження, звіт

NOTES scarce - недостатній, обмежений,


distribution - розподіл

consumption - споживання

supply - пропозиція, постачання

demand - попит, вимога

employment - зайнятість населення

tax - податок

transaction - операція, угода

to utilize - використовувати

commodity - товар, предмет споживання

household - домогосподарство

output - випуск

income - дохід, надходження, виторг

expenditure - затрати, розхід

interest rate - процентна ставка

EXERCISES I. Answer the following questions:

  1. What does economics explain?

  2. How can we define economics?

  3. What does macroeconomics study?

  4. What does microeconomics deal with?

  5. What is the difference between macroeconomics and microeconomics?

  6. What are the two branches of economics?

  7. What does the positive economics deal with?

  8. What is the aim of normative economics?

II. Form nouns using suffixes -ion, -don:

to produce, to compete, to distribute, to interact, to inflate, to consume, to determine, to define, to relate, to connect, to describe, to satisfy, to utilize.

III. The Three Sectors of the Economy.

We generally describe the economy as consisting of three sectors:

  • the primary sector: agriculture, and the extraction of raw materials from the earth;

  • the secondary sector: manufacturing industry, in which raw materials are turned into finished products (although, of course, many of the people working for manufacturing companies do not actually make anything, but provide a service -administration, law, finance, marketing, selling, computing, personnel, and so on);

  • the tertiary level: the commercial services that help industry produce and distribute goods to the final consumers, as well as activities such as education, health care, leisure, tourism, and so on.


V Suggest Ukrainian equivalents:

  • social science

  • unlimited and competing wants

  • to lay the foundations

  • commercial transactions

  • to match supply and demand

  • government spending

  • to utilize limited resources

  • collective decision

  • government activities

  • expenses of firms and households.

VI. Economic Terms. Match each word in column A with its definition in column B.



1. economics

a) Something in short supply; not enough to meet demand.

2. production

b) Activity of buying and using goods.

3. distribution

c) The creation of services or the changing of materials into products.

4. exchange

d) The activity of selling goods and services in order to make a profit.

5. consumption

e) The production, distribution and sale of goods and services for a profit.

6. business

f) The movement of finished products from the manufacturing location to the marketplace.

7. trade

g) The social science that describes and analyses how society chooses from among scarce resources to satisfy its wants.

8. scarce

h) The process of trading or bartering one unit or set of goods or services for another unit or set.

VII. Complete the following sentences using adjectives or/and adverbs: Example: a relatively difficult branch (adverb and adjective) an expensive cassette player (adjective) to buy something cheaply (adverb)

1. This is a book to read, (comparative, easy)

2. car production is not always to estimate

(total, easy, general)

3. Even some tools of analysis are not known, (common, economic,


4. Some microeconomic analyses offer detailed treatments of decisions.

(extreme, individual)

5. If we compare the market for cars and bicycles , we may be able to offer a

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